A distribution-free newsvendor model with balking penalty and random yield
Abstract: The purpose of this
paper is to extend the analysis of the distribution-free newsvendor problem in
an environment of customer balking, which occurs when customers are reluctant
to buy a product if its available inventory falls below a threshold level.
Design/methodology/approach: We provide a new tradeoff tool as a
replacement of the traditional one to weigh the holding cost and the goodwill
costs segment: in addition to the shortage penalty, we also introduce the
balking penalty. Furthermore, we extend our model to the case of random yield.
Findings: A model is presented for determining both an optimal order
quantity and a lower bound on the profit under the worst possible distribution
of the demand. We also study the effects of shortage penalty and the balking
penalty on the optimal order quantity, which have been largely bypassed in the
existing distribution free single period models with balking. Numerical
examples are presented to illustrate the result.
Originality/value: The incorporation of balking penalty and random yield
represents an important improvement in inventory policy performance for
distribution-free newsvendor problem when customer balking occurs and the
distributional form of demand is unknown.
Author: Chongfeng Lan,
Huanyong Ji, Jing Li
Journal Code: jptindustrigg150053
